Managing intercompany transactions/transfers is one of the biggest challenges impacting finance departments. Intercompany transfers are transactions between two or more related internal legal entities with common control (i.e., in the same enterprise) in which one business unit invoices another. In some companies, in particular when goods are transferred between entities, the goods are transferred at a price that is different from the sender's cost. In these transactions, accounting regulations require that internal profits/losses due to such transfers are eliminated from the income statement as long as the goods are still owned by the company. However, once the goods or items incorporating the goods are sold to an external party, the internal profits/losses can be realized and shown on the income statement.
Known financial computer systems, such as the E-Business Suite, Release 12, from Oracle Corp., can eliminate internal profits/losses for intercompany transfers. However known financial computer systems do not provide a mechanism to automatically realize internal profits/losses when the transferred items are sold to an external party.